End of sanctions will have short-term impact on oil; long-term impact on refined product and petrochemical markets

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The end of nuclear-related sanctions, which could happen by the end of 2015, will have a short-term impact on oil prices but a long-term impact on global refined product and petrochemical markets, a report issued by the Washington DC-based Atlantic Council’s Global Energy Center says.

“(The National Iranian Oil Company’s) NIOC’s primary goal after the sanction rollback would be to gain its pre- 2012 position as the second-leading oil exporter in OPEC, and to try to increase its oil exports to 2.5m barrels a day (b/d),” the report says. “However this increase will be gradual, both because of technical issues and because of the required time for marketing and sale of its extra oil at a time of oversupply in the market.”

The report says that Iran could increase its exports of crude oil about 400,000-500,000 b/d by the middle-to-end of 2016. Iran could also add an additional 150,000-200,000 b/d of condensate to its liquid export volumes by mid-2016.

The reported noted, however, that Iran’s Oil Minister has announced that he is ready to add 500,000 b/d of oil to its export upon the removal of sanctions, and an additional 500,000 by mid-2016. Part of this additional oil would be condensate. This could increase downward pressure on world oil prices which Iran can sustain. Its average cost of production is $3-7 a barrel, the report says.

The long-term impact of the end of sanctions and Iran’s plans to increase natural gas production will affect other parts of the global energy supply chain.

“… is important to note that Iran’s major energy impact in the middle and long terms will be on the global downstream (refined petroleum products) and petrochemical markets,” the report says. “This means that, instead of exporting raw materials such as crude oil or natural gas, Iran would process them domestically and export the final product.”

The report was written by Sara Vakhshouri, a Senior Fellow at the Global Energy Center and President of SVB Energy International. The report was released to coincide with the Atlantic Council’s Energy & Economic Summit in Istanbul which opened today.